Key Points:
A recent surge in meme coins, a cryptocurrency inspired by viral images and memes often lacking inherent value, has some investors concerned. Pepe, a frog-themed digital token launched in April, saw its market value peak at over $1.6 billion on May 5 before plummeting by as much as 70%. Bitcoin and Ether, two major cryptocurrencies, also experienced a 10% drop since May 5 due to the memecoin craze.
Long-time crypto traders have seen this pattern before. Memecoin booms typically occur during frothy periods when traders are willing to take additional risks. These speculators often offload some of their Bitcoin or Ether holdings to invest in meme coins, which can lead to a drawdown in the prices of the two major currencies.
Despite these concerns, Bitcoin is still up 60% since the beginning of 2021, and Ether is up 48%. Additionally, many factors impact cryptocurrency prices, including the macroeconomic environment and regulatory climate. For example, Ether’s price can be significantly affected by expectations related to the network’s software upgrades.
That said, past memecoin crazes have signaled market tops followed by multi-month drawdowns in BTC. For example, when Shiba Inu-themed Dogecoin led a meme-based boom in May 2021, it was followed by a Bitcoin selloff that lasted into July. Another memecoin rally in October 2021 happened just weeks before Bitcoin reached its all-time high, after which it began a significant retreat that lasted all last year.
DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.
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